Domestically guaranteed overseas loans have surged
On Monday, the official Securities Times reported in the face of an onshore credit crunch, Chinese enterprises are increasingly obtaining credit from Hong Kong banks via their subsidiaries in the city. It made domestically guaranteed overseas loans have surged. According to the paper due to booming demand, a number of mainland China commercial banks used up their quotas for domestically guaranteed overseas loans.
By getting a domestic bank to issue a letter of guarantee or standby letter of credit to its overseas subsidiary, a mainland enterprise can obtain a domestically guaranteed overseas loan. It is allowing the subsidiary to gain credit from banks overseas. An unnamed worker at a Shenzhen-based bank said “We have used up our quotas for the business.” “and I think most domestic banks have few quotas left,” he added.
An employee from another bank said State-owned enterprises will find it much harder to get standby letters of credit or guarantee letters even if parent companies provide a 100% security deposit. The person’s bank has stopped providing loans to mainland Chinese property developers. Because of the rising cost of credit on the mainland and the steady appreciation of the renminbi, Domestic enterprises are going to Hong Kong which can offer risk-free arbitrage earnings.